December 02, 2008

Smaller construction firms worst hit by steel price hike

BL reported that the mounting price of steel is likely to impact construction companies, especially those that have a higher proportion of fixed price contracts and also real estate developers.

Profit margins of larger infrastructure companies have reasonably withstood input price pressures, as they usually have inbuilt price escalation clauses in their contracts. Smaller construction players that execute contract work may feel the brunt of the hike as very few command favorable price terms with the project owner.

Steel accounts for a large chunk of cost for residential and office buildings. Unlike infrastructure developers, real estate players seldom have any agreement with the end users for raw material price hikes.